Sources - The Open University

mutebabiesBiotechnology

Dec 6, 2012 (4 years and 4 months ago)

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Internationalising to create
Firm Specific Advantages

US pharmaceutical firms in the
1930s and Indian pharmaceutical
firms in the 1990s


Suma Athreye (Brunel)

Andrew Godley (Reading)

Technological discontinuity and
market structure


Role of entrants

-
Creative destruction and new firms
introduce new technologies,
or

-
New firms exploit radical technologies
better


Soete (1985) Can give rise to
technological leapfrogging by new nations
-

ICT technologies

Technological discontinuity in
globalised industries


Lessons from East Asia


expand exports,
develop firm capabilities, learn from MNEs


Steinmueller ( 2001) identifies four pre
-
requisites for successful leapfrogging:

-
Develop own absorptive capacity to produce or use
technology

-
Access equipment and technological know
-
how

-
Develop complementary technological capabilities (e.g.
systemic architectures and knowledge)

-
Develop downstream integration capabilities in product
design and marketing

Technological discontinuity in
globalised industries


IB literature suggests use of international
strategies to acquire technological
knowledge

-
Acquisitions of technology based firms

-
Licensing

-
Alliances with foreign universities and
foreign firms

-
Use of immigrant networks to join
technology and markets

Pharmaceutical sector


Punctuated by discontinuities in
knowledge base

-

antibiotics

-


biotechnology


Changes in firm leadership


Also changes in national leadership


Is there a role for internationalisation
strategies in changing leadership?

Comparison of two periods in
Pharmaceutical history


1930s: discovery of antibiotics, international
market for antibiotics due to wartime needs,
barriers to FDI in many economies, US firms
leapfrog from behind superior European rivals
-

gain patents


1990s: the biotechnology revolution,
international market for generics drugs some of
which can be produced through the
biotechnology route, global financial markets
and no barriers to FDI, Indian firms attempt to
leapfrog Western firms

Comparison of firms in the two
periods


US firms in 1930s

-
Held no patents, leaders were European firms

-
Large market for wartime antibiotics

-
A patent regime in place, but mainly used for licensing

-
Developed manufacturing /marketing capability


Indian firms in 1990s

-
Few patents, leaders were European countries and US

-
Weak patent regime 1970
-
1990, strengthened in 1995

-
Large market for generics drugs due to foreign government
procurement policies

-
Reverse engineering and large scale manufacturing skills

Objectives of paper


Role of internationalisation strategies in
the technological catch
-
up of firms

-
Which strategies?

-
How did they contribute to catch
-
up?

-
Similarities and differences

Internationalisation strategies of US
firms : Outward investments


US outward investments into
Britain

P= prescription drugs manufacturers

OTC= over the counter drugs firms


US firms one of the largest inward
investors in UK Pharma sector

Initial dominance of OTC firms in
inward investment

Followed by dominance of
prescription drugs after the war

Sources:

Godley 2000 and Bostock and
Jones 1994. The chart includes the entire
subset of entrants in pharmaceuticals
-

SIC 257 (using UK SIC 1980 three digit
codes, following Bostock and Jones
1994).


1920-1940 (Total entrants = 23)
ROW (5)
US P (4)
US OTC (14)
1945-59 (Total entrants = 17)
US P (10)
US OTC (6)
ROW (1)
Mode of entry of US firms

(1914
-
1940)


Parent

Entry

Home

Purpose

Mode

Notes
/ Entry product

1

Lehn & Fink

1920

US

OTC

G

antiseptic (Lysol) & cosmetics

2

Colgate
-
Palmolive

1922

US

OTC

G?

toothpaste, soap

3

Kolynos

1922

US

OTC

G

toothpaste

4

United Drug

1923

US

OTC

A

toilet goods & proprietary medicines, acquired Boots. Divested 1933.

5

Mentholatum

1924

US

OTC

G

toothpaste

6

American Home Products

1927

US

OTC

A

toilet goods, toothpaste

7

Rhone Poulenc

1927

F

P

A

Acq. May & Baker c.£½m. Fine chemicals, biologicals & early sulfas.

8

Aspro Nicholas

1927

AUS

OTC

G

Novel aspirin, factory
in Slough, expanded thru A into toiletries. P post
WW2

9

Mulford

1928

US

P

G

Late entry into UK biologicals. Parent acq by Sharp & Dohme 1929

10

Ex Lax

1932

US

OTC

G

Laxatives

11

Lambert

1932

US

OTC

G

Listerine antiseptic
, toothpaste, shaving cream

12

Warner

1932

US

OTC

G

toilet goods, cosmetics

13

Pepsodent

1932

US

OTC

?

toothpaste

14

Ponds

1933

US

OTC

G

Ponds Extract ‘pain destroying and healing’.

15

Bristol
-
Myers

1933

US

OTC

JV

Laxative & toothpaste, maf by Boots after United Drug divestment. 1939

fdi.

16

CIBA

1934

CH

P

G
+

Fine chemicals, following earlier fdi in chemicals (1911) & R&D (1919)

17

Abbott Laboratories

1937

US

P

G

Anaesthetics

18

Tangee

1938

US

OTC

A

Lipstick.

19

Gelatin Products

1938

US

P

G

Gelatin capsules for pills.

20

Tampax

1
938

US

OTC/P

G

surgical tampons as minor sideline

21

Eli Lilly

1939

US

P

G

Antibiotics

entry at instigation of HMG

22

Geigy

1940

CH

P

G+

fine chemicals following earlier fdi in chemicals

23

Organon

1940

NL

P

G+

hormones following earlier fdi in Anglo
-
Dutch group.


Mode of entry of US firms


Acquisitions/JV favoured by OTC firms
(AHP, United Drugs and Bristol
-
Myers), as
a quick way to enter the Prescriptions
market
-

however first entry in OTC


Acquisition of ingredients and
manufacturing plants by European firms
-

and Us fine chemicals producers


Diversification from other lines of activity

Internationalisation strategies of
Indian firms : Outward investments


Prior to 1990, main form of outward investment by Indian
Pharma was JV and directed to neighbouring countries
and African nations with large expatriate populations


Post 1990, even spread between JV and WOS: of 127
known projects 64 were JV and 63 WOS.


Most popular destinations: USA (18), Nepal (13), UK
(12), Uzbekistan (9), Mauritius (8), Russia (6 ), China,
Ireland, Netherlands and Thailand with 5 projects each.


Acquisition activity of Indian firms
(1995
-
2006)

Region
N
USA
14
UK
8
Germany
5
Brazil
3
China
3
Belgium
2
France
2
Italy
2
Argentina
1
Australia
1
Canada
1
Hungary
1
Ireland
1
Japan
1
mexico
1
Poland
1
South Africa
1
Spain
1
Sweden
1
Switzerland
1
Venezuela
1
All
52
Firm
Acquistions
Countries
Ranbaxy Laboratories
9
6
Sun Pharmaceuticals
5
2
Glenmark Pharmaceuticals
5
4
Jubilant Organosys Ltd
4
2
Dr Reddy's Laboratories Ltd
4
4
Aurobindo Pharma
3
2
Nicholas Piramal India Ltd
3
2
Wockhardt Ltd
3
2
Dishman Pharmaceuticals & Chemicals Ltd
2
2
Other advantages of
internationalisation


US firms

-

Sale of German assets after WW1:related legacy
factors ( Merck)

-

People links

-
Alliances with UK Universities and Hospitals (
merck, Parke
-
Davis and Eli
-
Lilly)


Indian firms

-
Contract manufacturing agreements with
western MNEs

-
Diaspora scientists

Similarities in leapfrogging
strategies


Firms attempted to diversify from cash
-
rich
business lines (generics, OTC) to higher value
adding lines of activity (prescription drugs, new
chemical entities)


The four pre
-
requisites for successful
leapfrogging rarely available together


Internationalisation helps compensate for
missing elements
-

acquisitions also used by US
OTC firms (AHP, United Drug and Bristol Myers)


However, outward FDI only one element
-

alliances and people links important as well

Differences in leapfrogging
strategies


Globalised capital markets and tighter controls on the
underlying knowledge base have probably made a
acquisitions
-
based strategy more preferred by Indian
firms


The US industry was different. Key knowledge was
presented in the summer of 1941 by Oxford scientists.


Though Merck, Squibb and Pfizer were comparable to
European firms in 1941, by end of 1943, 16 firms had
been able to acquire sufficient manufacturing capabilities
to acquire licenses.


But these 16 had benefitted more form exposure to best
practice more through existing alliances than FDI. Firms
with no external links to advanced research in Europe
and Canada did not leapfrog successfully, even though
the key information about laboratory manufacturing
processes was made public in 1941.

So what?


FSA believed to be the cause of outward
FDI in a large literature
-

we show outward
FDI can sometimes secure FSA when
none exists.


In discussions of technological
leapfrogging inward FDI is privileged as
the vehicle of technological transfer, but
outward FDI can be useful as well.